Trend Watch: TechInsurance Notes Increase in Contract Requirements for E&O Insurance

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More businesses’ consulting contracts require computer consultants to carry professional liability coverage

So more and more companies are including clauses in their contracts requiring their IT contractors to carry E&O insurance, which addresses these risks.

TechInsurance, the nation’s top insurance provider for information technology businesses, has noted a trend toward an increasing number of consulting agreements that require information technology consultants to carry errors and omissions insurance, also known as E&O or professional liability coverage.

“The increase in contracts requiring E&O insurance is largely driven by risk managers recognizing that firms providing professional services, such as computer consultants, management consultants and marketing consultants, actually present liability risks that are not covered by general liability insurance,” said Jim Cochran, founder and president of TechInsurance. “In fact, the liability risk associated with professional errors, omissions and negligence for these businesses can actually be far greater than the bodily injury and property damage risks covered by general liability.”

Traditionally, business agreements for the hiring of outside service providers have required the suppliers to carry general liability insurance, which addresses the risks of bodily injury or property damage while the contractor or its employees are on the company’s premises. Often, that’s enough for companies hiring contractors such as construction companies or plumbers. But because the systems and data that IT contractors work with are often highly sensitive and critical to the hiring company’s ongoing operations, IT contractor arrangements present an entirely new set of risks – and these contractors are required to pursue a professional liability insurance quote in order to be in compliance.

“As an increasing number of companies hire consultants to manage and implement IT projects and solutions, the hiring companies’ greatest risk becomes financial loss due to those contractors’ providing bad advice, failing to perform their responsibilities, or making errors or omissions on the job,” Cochran said. “So more and more companies are including clauses in their contracts requiring their IT contractors to carry E&O insurance, which addresses these risks.”

For example, if an IT contractor is working on a client’s network and accidentally brings the network down for a day, and that company loses the ability to conduct business, it is losing money every minute the network is offline. In such a case, the company could sue the IT contractor for lost income, claiming that the contractor’s negligence caused the network failure and loss of business. If the contractor is required to carry professional liability coverage, the client company filing suit is assured that funds will be available to pay the settlement if a court makes an award to compensate the hiring company for its losses.

At the same time, E&O insurance protects the IT contractor against the high cost of fighting a case in court, as well as the expense of paying any court-ordered settlement out-of-pocket. Other legal allegations covered by E&O insurance might include claims of errors and omissions resulting in loss of client data, software or system failure, non-performance, or negligent oversell.

About TechInsurance
TechInsurance is a web-based e-agent that offers IT businesses and professionals fast, easy, one-stop shopping for all their commercial property insurance and liability needs. TechInsurance was founded in 1997 in response to the difficulty IT services firms had finding high-quality, affordable business insurance. With more than 12,000 businesses insured, the company has grown to become America's leading online provider of business and professional insurance for computer consulting, web services companies and other IT service businesses.

For information, visit http://www.techinsurance.com.

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Jim Cochran
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